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The Role of Life Insurance in Estate Planning

Imagine if the IRS ran an ad that said that you could pay your estate taxes in advance at a 75% discount. Instead of paying the government two million dollars at death due in estate taxes, you could pay them $50,000 a year for the next 10 years. Should you die within the next 10 years, the balance due would be forgiven. Your family would be free and clear of all estate taxes. Would you be interested?

You could get the same results using a survivorship life insurance policy. Let's say that you are 66 years old and your spouse is 60 years old. You further diversify your assets by gifting $50,000 a year into an irrevocable trust. The trust then uses the money to buy a survivorship life insurance policy covering you and your spouse for two million dollars. Upon the death of you and your spouse, the proceeds of two million dollars are received income and estate tax tree. The money is then used to pay all estate taxes owed, in this case two million dollars. Uncle Sam gets his money and your family retains all of yours. This can only be achieved with life insurance. The trust can also be creditor proof, divorce proof and generation skipping tax proof.

We have many clients on Wall Street. They appreciated the leverage they can achieve with a product as conservative as life insurance. To earn the two million tax-free dollars that the life insurance provides, they would have to earn eight million estate and income taxable dollars. Many of our clients involved in real estate appreciate the liquidity of life insurance. If their family had to sell real estate to pay the estate taxes due nine months after their death, the chances are that the properties would be sold at a considerable loss.
We have used this strategy for estates involved from three million to estates valued at over 75 million dollars.